My First Investment!
Hello everyone
I just put a contract on my first investment. I am using a hard money loan> Can anyone go into detail if this is a good idea or not. The house I am purchasing is worth about 76000.00 fixed up. I offered 50,000.00, the bank (it is a foreclosure) wants no less than 55000.00. And it needs at least 5000.00 worth a work. But i dont know I'm very new to this. I would like to resell it. I'm already a landlord on my last house that i lived in and i hate being a landlord. I really need help and advice on this. Any will do. Thanks 
mstara,
Let's run the numbers.
1. Cost 55K
2. Repairs 5K
3. REA and closing costs 10% of 76K = 7600
So far, your net is $8,400 A lot of investors won't risk their money when the profit is not at least 10K, but each person makes their own determination on this.
4. Hard money lender points ???
5. Total monthly payments while rehabbing???
After subtracting these numbers from your net, then you can decide if you have a good deal. Be sure that whatever you estimate for #5 above, you double. The most common mistake rehabbers and investors make is not having enough cash in reserves to hold a property for extended periods of time while their project sits in limbo with permits, contractors and other issues.
HTH,
Robert
Yeah I'd definitly account for thoughs extra bank fees. Points will get ya.
Hi Robert
The comps around the area for this house is 97000-100000. So i may be able to sell this house for more. Im going to do alot of the work myself along with a few handymen. What is the formula again to see if it is worth my time. If the bank took my offer of 50000.00. My budget is to fix it up with 5000.00. My hard money loan is 56000.00, including the closing costs. Is this worth it , if I sell Iy for 86000.00 (high end).
mstara,
There really isn't a formula. The question is more how "Is the amount of profit proportional to my risk?".
If your are making $3000, and your risk having to hold the property for 12 months while it is rehabbed, the risk is high for such a small gain. On the other hand, if you stand to make $30,000 while you hold the property for six months to rehab, you are making about $10,000 per month. For many this would be considered acceptable risk.
So how much are you willing to risk, and how much reserves do you have in case you have to hold the property longer and run into unexpected issues during your rehab? If you can truly can sell the property for 90K, then it looks like you have 30K to work with. How long will it take to rehab. You are probably paying between $400-500/month for your payments and property taxes. So if your project took a year to finish because of unexpected delays, you have spent another $6000 of your $30K. That still leaves $24K left.
I personally think that this might be a good deal. But I would also check out what it would cost to have someone else do the work, so you have those numbers in case you get incapacitated and are unable to do the work you plan on doing. You may get hurt or get caught up with other emergencies in life and you cannot afford for your investment to go south with these un anticipated issues.
HTH,
Robert
Quote:
On 2004-09-18 10:59, mstara wrote:
Hi Robert
The comps around the area for this house is 97000-100000. So i may be able to sell this house for more. Im going to do alot of the work myself along with a few handymen. What is the formula again to see if it is worth my time. If the bank took my offer of 50000.00. My budget is to fix it up with 5000.00. My hard money loan is 56000.00, including the closing costs. Is this worth it , if I sell Iy for 86000.00 (high end).
[addsig]
Hi robert
Thanks for the great advice. I am currently waiting to see if the bank will accept my offer. Then im gonna be able to answer your other questions. Ill let you know something, because i really value your advice.,
Thanks
Tara[ Edited by mstara on Date 09/21/2004 ]
mstara,
Sounds alot like my first rehab, bank sale they wanted 43K, my offer was 38K, they didn't budge so I sent for it. In hind sight should have stuck to my guns because 38K was what it was worth. My suggestion is figure out all worse case costs (having it a year) add in the profit you want to make and take all those costs out of a conservative resale price. Once you have this number this is your target purchase price. If you are at a price below what bank wants now you have to ask are you willing to take a hit on your profit for the difference or can you reasonably conclude that you can turn it over in six months. These are all the questions you need to ask yourself. In my opinion I would stick to my guns and tell them that is your offer.
To make a long story short my first rehab the repairs cost 15% more than carried because a contractor sitffed me, due to this we took any extra month to complete work and put it on the market too late in the fall. The property did not sell for another 5 months because all of a sudden their were 50+ props in my price range (90-100K) on the market and not many buyers. So for all that we ended up making very little but learned a hell of alot of lessons
TBARBER
I am assuming that you took pictures of all the work needed and made the bank aware of what is needed -- and they still won't budge on price.
Another thing to keep in mind with rehabs is that estimates of rehab time are usually optimistic. I have received sharp estimates of costs, but the time estimates are usually way off. Keep this in mind when you calculate your holding costs.
Good Day All
I have someone who wants to give me a house, subject to the current www.mortage.the property is in good shape, having been renovated about 4 years ago. I don't know if the loan is assumable and do not want to "tip the mortgage company off " until I have everything in order. The seller's only concern before doing the deal is that they do not want to be responsible for the loan. I can get a copy of the closing statement etc that they were given at their closing, but I was told that I may not be able to tell if the mortgage is assumeable without qualifing from the paper work that the buyer got at closing. As this is my 1st deal I need help with what type of contract I need for the deal and (buyer does not want any money, just concerned about being responsible for the mortgage) I don't have any cash to put the deal together but the property will rent for more than enough to cover the mortgage. Any help with how to proceed will be much appreciated and I will attempt to return the favor of the information in anyway I can.
Thanks again...Hopeful! ) :
Hi Tbarber and eMeyer, and robert
Im still waiting on my last offer with this bank. It is a Va Foreclosure. We seem to think they are waiting upon other bids. Who knows. But i will not settle for anything less than what i've offered. The house needs work but only in 3 rooms. that is the kitchen, lvg room floor and bathroom. The joists bands are damaged in the kitchen and the whole floor will need to be replaced , along with the floor in the bathroom and living room. My estimate so far is $4000.00 to do all the work, and the only thing needed afterwards is some minor landscaping and paint. Which i will be doing myself. I dont plan on fixing this house for no longer than 2-3 months. And then it is going up for sale. I have a network realtor that im working with, so I may be looking at the early winter (i hope) to sell this. I really dont wanna sit on the house for no longer than 6 months. Here's plan B, I have a person who wants to rent to own this house already, if with God's help the bank will show favor and say yes to my offer. His deal is to stay in it , fix it up to make it look really nice (saves time for me). He pays 800.00 a month towards rent with $150.00 going towards his purchase price. My payment on the house is 240.00 for one year, im only paying interest on my loan, so i really need to get rid of it a year, at least. This is my last option but a good one. Let me know what you think and if you've had any experiences with things like this. Im taking it slow, because i dont wanna get in to far over my head.
thank you in advance. ms tara
Remember this: In realestate 10 grand can disapear REALLY FAST. if you dont stands to make more than that you really have your head on the chopping block. I have an excel evaluator that helps to calculate costs. It helps you remember all the misc fees. my email is jpchapboy at hotmail. if you send me an email I'll send it to you. it could really save your b---.
Josh
[addsig]
The bank denied it again....... oh well here we go again, they will not accept my 50000.00. they keep insisting on 55000.000. maybe i should go in between that? i dont know. I think ill be looking for a partner, which i have someone in mind. oh well, im gonna hve to think this out...........................